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Centralized vs. state-by-state: Licensing for financial institutions in the EU and U.S.

Financial institutions and financial technology companies operating in the European Union as electronic money institutions (EMIs) or payment services providers will be familiar with the concept of “passporting” financial licenses to operate across the entire region. After securing licensing from the regulatory authority in one country, this centralized model allows the company to operate across the entire EU and European Economic Area (EEA). The United States, however, does not have a standardized regulatory framework across the country, with requirements and applications for securing money transmission licenses (MTLs) varying state-by-state. See How to secure & maintain money transmission licenses (MTLs) for details on what’s required in the United States both at the federal and state levels.

Here's an overview of how the processes differ across the pond:
 
European Union
Electronic money institutions
United States
Licensed money transmitters
Regulatory framework

Centralized.

Companies typically obtain a license from the regulatory authority in one member state, under frameworks like the Payment Services Directive (PSD2) for payment service providers or the Electronic Money Directive for electronic money institutions. This single license allows them to operate across the entire EU and EEA.

State by state.

Money transmission is regulated at the state level, meaning companies must obtain licenses in each state where they intend to operate. This can result in a complex and time-consuming process, as requirements vary significantly from state to state.

Application process 

One member state application.

Business plan, AML and compliance programs, and initial capital reviewed in detail by one member state’s regulator.

Individual application for each state regulator.

Business plan, AML and compliance programs, initial capital, financial statements, and background checks reviewed in detail by each individual state regulator. 

Many states use the Nationwide Multistate Licensing System & Registry (NMLS) for application submissions, but requirements vary.

Costs and timeframe

Predictable costs, variable timeframe.

While also potentially expensive, the cost structure in the EU is generally predictable due to the standardized regulatory framework. The timeframe for obtaining a license can vary.

Highly variable costs and timeframe.

The costs (application fees, surety bonds, legal and consulting fees) and time required to obtain MTLs can vary widely depending on the number of states and their individual requirements. For licensing in all geographies, the process is likely to take years.

 

Unlike the United States, the EU's centralized model allows for operation across member states with a single license, simplifying expansion across the region. This also makes it easier for a company to understand the potential costs and timing implications to secure licensing. The state-by-state model for money transmission licenses (MTLs) in the U.S. can lead to high variability in costs and timing.

Alviere is a regulated financial institution, with money transmission licenses (MTLs) throughout the country. Learn more about Alviere’s commitment to Security & Compliance here

Written by Alviere